The Battle of the $1 DVD Rentals Heats Up

Redbox, the $1 per day DVD rental kiosk business, is a runaway success. It’s perhaps experiencing even more of a recession boom than mail-DVD-rental service Netflix. Redbox kiosks will soon be opened in supermarkets like Albertson’s and Kroger, bringing its total number of vending machines to 22,000 nationwide, up 61 percent from last year. All that growth has stirred up an old-school competitor: Blockbuster.

Redbox President Mitch Lowe, quoted in USA Today, says, “We calculate that 150 million people every week walk within 10 feet of one of our locations.”

Brick-and-mortar movie rental stalwart Blockbuster, which for years has been battling Netflix for DVD dollars, now has no choice but to contend with Redbox by opening its own rental kiosks. Blockbuster’s copycat operation will cost a penny less than Redbox’s, and it’ll rent DVDs as well as a little something extra, video games:

Success breeds competition, and Blockbuster says it will have nearly 3,000 kiosks renting and selling discs and games by the end of this year, growing to 10,000 in late 2010.

“One of our price points will be 99 cents,” Blockbuster CEO James Keyes says. “But we will have a broad range of other offerings.”

(Side note: I’m fascinated with how Redbox makes money, and if you’re interested too, the USA Today story provides some details: “Redbox pays about $18 for a DVD and rents it about 15 times at an average of $2 per transaction. The company sells half of the used DVDs back to wholesalers for as much as $4 per disc, and sells about 3% directly to consumers for about $7. It destroys most of the rest.”)

In any event, look for more $1 (or sub-$1) DVD rentals in your neighborhood soon. A buck for a movie is pretty good—way better than $10.50 or whatever going to the movies costs nowadays. But I still contend there’s an even better value when it comes to renting movies: the library.